McLEAN, Va. — Capital One and Wells Fargo, two out of three national auto lenders SubPrime Auto Finance News reviewed, reported reductions in origination volume and tightened their auto lending standards during the first quarter.

The last, Chase, interestingly enough, actually grew origination volume. However, all three — Capital One Auto Finance, Wells Fargo Financial and Chase Auto Finance — posted losses, reflecting the turbulent times for the economy.

Capital One

Kicking it off, Capital One Auto Finance posted a hefty loss of $82.4 million for the quarter, which was down from a loss of $112.4 million in the prior quarter.

To align its business with the current environment, the company said it has "significantly" reduced volumes due a tightened credit policy and increased pricing.

"The results of the auto finance business continue to be negatively impacted by both the current credit environment and the company's credit outlook," officials explained.

They indicated that, "The company expects its actions to result in a substantially smaller but more stable auto finance business going forward."

For the quarter, the division's revenues climbed $15.5 million and provision and operating expenses were down by $29.1 million.

Moreover, Capital One Auto Finance said net charge-offs declined a bit to 3.98 percent from 4 percent in the fourth quarter of the prior year.

However, officials said the charge-offs "increased from 2.29 percent in the first quarter of 2007. Delinquencies declined 142 basis points from the prior quarter to 6.42 percent, but rose from 4.64 percent in the year-ago quarter."

Originations declined 32.7 percent, or $1.2 billion, to $2.4 billion over the previous period.

As for managed loans, these came in at $24.6 billion as of March 31, down 2 percent from the fourth quarter, but up 2.9 percent from the first quarter in 2007.

Discussing all the company's business units, Richard Fairbank, Capital One's chairman and chief executive officer, reported, "We're well-positioned to navigate near-term cyclical challenges with resilient businesses, experience in managing through prior cyclical downturns and a strong balance sheet.

"We're actively managing the company to protect our franchises and deliver shareholder return," he continued.

Gary Perlin, chief financial officer, added, "A substantial increase in revenue margin, coupled with expense reductions largely offset the adverse impact of higher credit costs. Because of the strong capital generation of our businesses, we were able to significantly raise our dividend as planned, while building capital to the high-end of our range."

Wells Fargo

Wells Fargo Financial also reported that it cut volume in its auto finance business; however, the company apparently fared more positively than Capital One, reducing 31-day delinquencies by 15 percent from the same period last year.

"Lower volume levels in our auto lending business resulted in a 4-percent decline in the portfolio's average loans over the previous quarter," pointed out Tom Shippee, president and CEO of Wells Fargo Financial.

The auto finance unit's receivables/operating leases were down 7 percent to $28.6 billion.

"Delinquencies classified as 31-days-plus on a six-month lag basis improved 15 percent from the first quarter of 2007, benefiting from our commitment to an improved collections process," he added.

The division's real-estate business did not do as well, which hurt Wells Fargo Financial's overall results.

"However, real estate losses continued to increase, consistent with the general condition of the housing market. Real-estate losses in the U.S. debt consolidation portfolio increase to $34 million (0.56 percent annualized loss rate) from $18 million (0.31 percent) in the prior quarter," he stated.

Moreover, he noted, "Stress in the real estate portfolio affected our credit card customers as well, with loss rates on that portfolio up 16 percent on a linked-quarter basis."

Overall, Wells Fargo Financial reported average loans of $68.4 billion, up 9 percent from the first quarter. Meanwhile, first-quarter revenue climbed 7 percent from last year to $1.4 billion, thanks in part to higher total loan volumes.

Provision for credit losses was up $158 million, which includes $130 million from higher net charge-offs and $28 million of additional loan provision.

Net income was $97 million, compared with $112 million in the prior year, down 13 percent. Also, non-interest expense declined 5 percent over last year.

"In a challenging economic environment, our net income was lower than the first quarter last year, but increased 24 percent on a linked-quarter basis," Shippee highlighted, talking about the entire division. "Year-over-year loan and revenue growth, coupled with decreasing expenses — as we continue to aggressively manage costs — was a positive combination.

"Right-sizing our business and proactively managing expenses has helped offset the effects of the general economic decline," he continued. "Credit losses and delinquencies increased in most of our portfolios, but overall performance was solid despite broad stress in the consumer finance industry."


Chase's Auto Finance division took a hit in net income, coming in at $74 million for the quarter, down $11 million, or 13 percent, over 2007.

However, net revenue was $530 million, up $120 million, or 29 percent, which officials said reflected a reduction in residual value reserves for direct finance leases, higher automobile operating lease revenue, higher loan balances and wider loan spreads.

"The provision for credit losses was $168 million, up $109 million," executives indicated. "The current-quarter provision included an increase in the allowance for credit losses, reflecting higher estimated losses."

Additionally, the net charge-off rate came in at 1.10 percent, compared with 0.59 percent last year. Meanwhile, non-interest expenses were $240 million, up $30 million, or 14 percent, due to increased depreciation expense on owned vehicles subject to operating leases.

While the other national lenders reduced originations, Chase Auto Finance actually grew its to $7.2 billion, up 38 percent, from $5.6 million in the fourth quarter and $5.2 million in the first quarter of last year.

Average loans were $42.9 billion, up 9 percent. Including both loans and leases, this number was $45.1 million, compared with $43.5 million in the fourth quarter and 42.5 million in the first quarter of 2007.

Commenting on overall business, Jamie Dimon, chairman and CEO, said, "Our earnings this quarter were down significantly as market conditions and the credit environment remained challenging.

"However, the firm as a whole maintained solid business momentum and our capital position remained strong," he added.

Looking forward, Dimon reported, "Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress. These factors have affected, and are likely to continue to negatively impact, our firm's credit losses, overall business volumes and earnings — possibly through the remainder of the year or longer.

"However, we are prepared to manage through this down part of the economic cycle, given the strength of our liquidity, credit reserves, capital and operating margins, and to successfully position our company well for the future," he concluded.